Thankfully, we didn’t take out that event contract on the launch of the first prediction-market ETFs this week.

Prediction markets have surged in popularity, thanks to event contract trading platforms such as Kalshi and Polymarket that allow “yes” or “no” bets on everything from when traffic at the Strait of Hormuz will return to normal to who will win American Idol. While there’s also been a surge of ETFs that offer exposure to potentially complex corners of the financial markets in the easy-to-trade wrapper, prediction-market ETFs would come with their own unique set of risks, including the fact that they could essentially go to zero should an event not happen.

As we previously reported, exchange-traded funds from GraniteShares, Roundhill and Bitwise filed in February with the Securities and Exchange Commission were expected to come to fruition this week. (The SEC’s rule stipulates that ETFs automatically become effective 75 days after filing unless the agency intervenes.) No dice. Wall Street’s watchdog is reportedly delaying the launches and seeking more information about the funds’ mechanics and disclosures.

“This sounds like a rain delay,” said Bloomberg analyst Eric Balchunas. “It doesn’t sound like some permanent problem.”

Green Light: Yes or No?

The SEC has moved away from the regulation-by-enforcement approach implemented with Gary Gensler at the helm. Under current Chair Paul Atkins and the Trump administration, the agency has adopted a more relaxed handling of product approvals. Last year, for instance, it began allowing in-kind creations and redemptions for spot crypto ETFs, meaning the funds were no longer limited to just cash transactions. When it comes to the prediction-market ETFs, Balchunas said it’s likely the SEC is making sure T’s are crossed and I’s are dotted regarding disclosures, since this is a very disclosure-oriented SEC:

• He said the agency is probably asking the issuers to further explain the disclosures and how mechanics around exposure and a yes-no market will work.
• When ETFs are simply following in the footsteps of others in a category, you’d be less likely to see a delay like this. But “these are groundbreaking products,” Balchunas said.

The SEC and Bitwise declined to comment, while Roundhill and GraniteShares did not respond to requests for comment.

Déjà Vu: The delays may have some issuers feeling like it’s pre-2024, when firms were lining up to launch spot bitcoin ETFs. But while the journey to an approved spot crypto ETF took roughly a decade, Balchunas expects a much shorter process this time around. “The SEC just really wants to make sure they’re comfortable because once you’re in an ETF wrapper, you’re ready for middle America,” he said.

Like ’90s fashion and matcha lattes, ETFs are in vogue. Even institutional investors think so.

Public and corporate defined benefit plans, endowments, hospital systems and other institutional asset owners in the US and Canada have nearly doubled their usage of exchange-traded funds over the past five years, according to a recent report from Cerulli Associates and Invesco. Holdings grew at a 14.4% five‑year compound annual growth rate between 2020 and 2025, nearly triple the 5% rate of the broader US institutional market.

ETFs have surged in inflows recently, with 2025 serving as a record year for launches, inflows and AUM in the US. Citigroup analysts estimated that the market could roughly double to $25 trillion by 2030. Wall Street pros are likely to help: Around half of institutional ETF users said they expect to increase their ETF allocations over the next two years, and 16% of non-users are planning to start investing in ETFs over the same time period, according to Cerulli’s report.

“Asset owners are continuing to evolve their use of ETFs” as more funds become available and more investment teams become confident and comfortable with the wrapper, said Brendan Powers, co-head of Cerulli’s product development and institutional practices.

Growing Use Cases

Active ETFs are one area that will continue to propel institutional adoption, Powers said. While today’s use cases are primarily focused on index-tracking strategies, Cerulli found that there’s greater interest in using active ETFs, including for fixed income and hard-to-reach markets such as emerging markets and crypto.

But ETFs are also increasingly being used as a tool for operational efficiency and capacity. For smaller asset owners who may have a lean team (think a chief investment officer and perhaps an analyst or two), a simple tool like an ETF that potentially invests in a fairly straightforward index strategy is attractive, Powers said. And for bigger firms managing strategies in house, buying and selling individual equities is onerous. ETFs make it easier.

It’s not just an American trend:

• Around the world, there are many innovative ways that institutions are using ETFs, said Deborah Fuhr, founder of ETF research firm ETFGI.
• She pointed to the Colombian Ministry of Finance partnering with Global X ETFs in 2024 to launch Colombia’s first fixed income ETF. In Japan, she adds, ETFs have been used for the central bank’s quantitative easing.

Pensions Lead: As of the end of last year, public defined benefit plans in the US and Canada invested roughly $133.7 billion in US ETFs, and 17 of the top 25 institutional asset owners by AUM are public defined benefit plans. Foundations and endowments follow, with $89.2 billion in the assets collectively.

Shorter doesn’t always mean less.

Investors are increasingly piling into short-duration bond ETFs, which invest in debt securities with shorter maturities, usually between one and three years (but some with less than a year). The ultrashort bond category had its highest inflows on record last month, topping $24 billion. High yields for ultrashort-term bonds mean these funds can be an attractive alternative for investors looking to house their excess cash. Short-term bond ETFs also regularly outperform bank savings account yields and average CD rates, according to a recent BlackRock report. It’s an appealing option for advisors looking for a place to house clients’ cash.

“We’ve seen short-term yields elevated for a bit of time now, and that’s put a spotlight on a lot of these ETFs,” said Paul Olmsted, senior analyst of fixed income strategies at Morningstar. “Some [bank] products … aren’t yielding much at all. Investors are becoming more aware of this and realizing, ‘Hey, if I can earn 50 basis points more versus money markets … I want to do it.’”

Yield Curve Ball

The funds can also offer both diversification benefits and higher yield with relatively lower risk, specifically duration risk, or the risk of the price of a bond decreasing if interest rates rise. The investing environment was, up until early last year, considered an inverted yield curve, meaning long-term interest rates were lower than short-term ones. That further fed investors’ appetite for these funds, Olmsted said.

Some of the highest-yielding short-term bond products include:

• The JPMorgan Ultra-Short Income ETF (JPST), which has $37.5 billion in assets and a dividend yield of 4.36%.
• The Fidelity Low Duration Bond Factor ETF (FLDR) manages $1.38 billion and has a yield of 4.54%.
• The State Street SPDR Bloomberg Investment Grade Floating Rate ETF (FLRN), which oversees $2.79 billion and has a yield of 4.69%.

Time to Kill: Still, ultrashort isn’t for everyone. These products are best for someone with a longer time horizon who can take on more risk, Olmsted said. Another option is in a fixed-income portfolio comprised mainly of core bond funds (like those investing in government, corporate and securitized debt). Taking a portion of the money invested in those core bonds and putting them in short-term or ultrashort bond funds can help diversify and reduce duration risk.

“If you have an interest rate view, you can express it by putting something in a short-term or ultrashort-term ETF,” he said. “You can put your money in a safe spot, get a reasonable yield in a diversified ultrashort ETF. And there are some very good ones out there.”